Maternity Pay covers the full extent of a claimant’s maternity leave period. Through this blog post, we aim to discuss whether maternity pay is calculated before or after tax. In addition to this, we will also explore how tax is applied to earnings and bonuses, how taxes are calculated and what are the different types of taxes applied under the UK system.

Is Maternity Pay Before Or After Tax?

Statutory Maternity Pay (SMP) is calculated before tax deduction. It is subject to a tax deduction and national insurance contribution in the same way as your regular income.

Statuary Maternity Pay starts on the same date as the claimant’s maternity leave and is paid for 39 weeks from thereon.

Claimants can expect to receive their Statuary Maternity Pay as per the below calculations:

  • for the first 6 weeks, you will get 90% of your average weekly income (before tax) 
  • for the remaining 33 weeks, you will get £151.97 or 90% of your average weekly earnings (whichever is lower) 

As per the Maternity Pay Calculator, it is generally assumed that the claimant receives monthly (rather than four-weekly or weekly) wages, their working days of the month are Monday to Friday and they are paid on the last day of the month. Based on these assumptions, the following criteria are considered when calculating maternity pay:

  • the average weekly earnings are estimated by dividing the salary over 52 weeks
  • the HMRC rates for SMP are used for calculation purposes which are based on a lower earnings limit threshold
  • Maternity Allowance, Shared Parental Leave and Keep In Touch days are not accounted for

Claimants should confirm whether they are eligible for Statutory Maternity Pay as it applies in cases where you earn at least £120 a week.

How Do I  Calculate Bonus Tax?

You can calculate the amount of tax that you pay on your salary bonus in the same way that the tax on your monthly income is calculated. Therefore, salaried individuals pay income tax and national insurance on a bonus as they would on a regular income. The reason for this is that when employees receive a bonus in the UK, it is treated in the same way as their income when it comes to tax calculations. 

This means that if you earn £30,000 a year and are classified as a basic rate taxpayer, you will be paying 20% tax and 12% national insurance on incomes in excess of £12,570. If you get a bonus of £3,000, you will still be paying 20% tax and 12% national insurance on this as well.

Sometimes the bonus that you earn may raise the level of your tax bracket which means that incomes (salary plus bonus) below a certain threshold will be taxed at a separate rate, while those in excess of the minimum limit will be taxed at a higher rate.

For instance, you earn $45,000 a year and are considered a basic rate taxpayer, paying 20% tax and 12% national insurance on incomes in excess of £12,570. However, you receive a bonus of £10,000 making your annual income £55,000; taking your annual earnings to a higher tax bracket. This means that high incomes and larger bonuses increase the amount of tax deductions.

How Much Tax Will I Pay On A Second Job?

The tax that you pay on a second job will depend on a number of factors. However, generally speaking, your second job is usually assigned a BR (Basic Rate) tax code which indicates that there is a 20 per cent tax due on your income.  

When you are working in the UK, there is a certain amount of your income that remains tax-free as it is considered to be a Personal Allowance. The amount set for Personal Allowance during the 2021-2022 tax period is £12,750. Your personal allowance is applicable to your combined incomes from different sources. However, for the purpose of tax deduction, your main or primary job, which is also the source of a higher income is considered for Personal Allowance deduction prior to a tax rate being applied.

Your second job is usually considered to be the one that provides a lower income than the first one and there is no consideration for Personal Allowance since it has already been accounted for. The reason is that the HMRC divides your total income by sources to calculate the amount of tax that is due on your cumulative income.

How Much Income Tax Do I Have To Pay?

Incomes above the minimum cap are taxed at an incremental rate of 20 per cent to 45 per cent depending on whether an individual belongs to the basic, higher or additional tax rate band. Below are details of these bands:

  • 0 per cent income tax when income is up to £12,570
  • 20 per cent income tax when income is between £12,571 and £50,270 
  • 40 per cent income tax when income is between £50,271 and £150,000 
  • 45 per cent income tax when income is above £150,001

If you are self-employed, you are required to file a self-employed tax return to pay your taxes through a self-assessment. 

Which Incomes Are Tax-Free?

Incomes derived from any of the following sources are considered to be tax-free in the UK:

  • Transport costs of an employee’s (and their immediate family) relocation for work in the UK
  • Winnings from games, pool betting, lotteries or competitions with prizes
  • Long service employee awards (certain limitations apply)
  • Individual savings account amounting to £20,000
  • Incomes such as interest or dividends arising from savings accounts 
  • Pensions paid to war widows and dependents
  • Social security and state benefits include maternity allowance, employment and support allowance, attendance allowance, child tax credit and housing benefit. 

What Are The Different Taxes In The UK?

There are different types of taxes under the UK taxation system. Direct taxes include PAYE (Pay As You Earn) and National Insurance. These account for 20 per cent of an individual’s income. On the other hand, indirect taxes include VAT, council tax as well as duties on alcohol and petrol. 

Direct taxes are automatically deducted from your wages, income or pension before you receive them. This is termed Pay As You Earn. Anyone earning equal to or less than £12,750 is not eligible for PAYE as the amount is considered under the law as an individual’s allowance. 

Therefore, basic taxes in the UK include the following:

  • Income Taxes 
  • Property Taxes 
  • Capital Gains 
  • UK Inheritance Taxes 
  • Value Added Tax 

These are all progressive taxes; which means that the amount of tax increases with an increase in income.

Do I Have To Pay Taxes on Benefits?

Some state benefits are taxable while others are not. Below are details of each category:

Taxable state benefits include the following:

  • Bereavement Allowance 
  • Carer’s Allowance
  • Employment and Support Allowance (contribution related)
  • Jobseeker’s Allowance
  • Widowed Parent’s Allowance
  • Incapacity Benefit
  • Pensions paid by the Industrial Death Benefit scheme
  • State Pension

Non-taxable state benefits are listed below:

  • Attendance Allowance
  • Disability Living Allowance 
  • Guardian’s Allowance
  • Employment and Support Allowance (income-related)
  • Maternity Allowance
  • Severe Disablement Allowance
  • Bereavement support payment
  • Child Benefit 
  • Housing Benefit
  • Industrial Injuries Benefit
  • Child Tax Credit
  • Pension Credit
  • Universal Credit
  • Working Tax Credit
  • Free TV licence for over-75s
  • Income Support
  • Lump-sum bereavement payments
  • Personal Independence Payment 
  • War Widow’s Pension
  • Winter Fuel Payments and Christmas Bonus

Who Collects Tax Revenues In The UK?

The HMRC collects and administers tax collection in the UK. HMRC administers the following central taxes while local governments collect council tax:

  • Income tax
  • Corporation tax
  • Capital gains tax
  • Inheritance tax
  • Insurance premium tax
  • Stamp, land, and petroleum revenue taxes
  • Environmental taxes
  • Climate change and aggregates levy and landfill tax
  • Value-Added Tax
  • Customs duty
  • Excise duties

Who Is Tax Exempt?

Individuals may apply for tax exemption if they face  the following conditions:

  • If someone is a tax resident for at least one year out of the previous three years 
  • They have spent less than 16 days in the UK during the previous tax year
  • They are not a UK resident

The same applies in case:

  • Someone is not a tax resident for the previous three years
  • They have spent less than 46 days in the UK

What Benefits Can You Claim During Maternity?

Benefits that you can claim during maternity include the following:

  • Universal Credit: This is applicable if the applicant is pregnant and also without an income
  • Housing Benefit: This will help you with rent and housing costs
  • Discretionary Housing Payment: This is a non-refundable one-time payment to help with rent/deposit/advance
  • Sure Start Maternity Grant: This is a £500 grant to help expecting mothers with the expenses of their first child
  • Free NHS dental care and prescriptions  
  • Child Benefit: These are regular payments made after the child is born up until they are 16 years of age (in some cases it may be up to 20 years if the child is in full-time education)
  • Council Housing Priority: Claimant will be marked as in “priority need” and can expect a council house much sooner than others. During this transition, the council will arrange temporary residence for them. 

Conclusion:

Through this article, we have come to conclude that maternity pay is taken into account before tax deduction. Taxes are applied on the amount of maternity pay in the same manner as in the case of average pay and national insurance is deducted as well. Maternity pay applies to the period of maternity leave and can be claimed for up to 39 weeks. 

FAQs: Is Maternity Pay Before Or After Tax?

How much is statutory maternity pay?

Statutory Maternity Pay comes to 90% of your average weekly income for the first 6 weeks and for the remaining 33 weeks, you will get £151.97 or 90% of your average weekly earnings (whichever is lower). 

How is maternity pay calculated?

Statutory Maternity Pay after-tax applies as per the below calculations:

  • for the first 6 weeks, you will get 90% of your average weekly income (before tax) 
  • for the remaining 33 weeks, you will get £151.97 or 90% of your average weekly earnings (whichever is lower) 

Does maternity pay show on the payslip?

Yes, maternity pay, paternity pay and adoption pay all show on an employee’s payslip. It applies to the same dates as a claimant’s maternity leave dates and runs through 39 weeks.

Can I apply for unemployment if I’m pregnant?

Unless it is a complicated pregnancy and conditions prevent the expecting mother from performing the usual tasks associated with her job, there is little to no reason to claim unemployed status due to pregnancy. However, if you were claiming certain benefits prior to being pregnant, you will continue to receive them.  

How can I get housing when pregnant?

Housing for pregnant women may come from different sources. The first thing you should do is contact your local council so that they may arrange a council house on affordable rent for you. If finding suitable accommodation takes time, they will be able to arrange temporary residence/shelter for you to prevent homelessness. Additionally, many housing associations, charities and grants fast track applications for expecting mothers.

References:

Maternity-pay-calculator

Maternity-pay-leave/pay

Parental-rights/maternity-pay-how-much-you-can-get/

Expenses and benefits: bonuses: What to report and pay – GOV.UK

How are bonuses taxed in the UK? | Cash and non-cash bonuses

Why Is My Bonus Taxed So High UK? – Discover card

Are UK bonuses taxed? Here’s all you need to know

Tax-free bonus to employees in the UK – What you need to know

Income tax calculator 2022-23, 2021-22 and 2020-21

UK Tax Calculators

HM Revenue & Customs – GOV.UK

Income Tax – GOV.UK

Second job tax and pay

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John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.